Arbitration Update - The LCIA's Annual Case Report highlights its position as a forum of choice for international parties
Following the publication of its Annual Casework Report for 2022, the LCIA remains a leading international arbitral institution with strong international appeal, evident in an upward trajectory of cases towards the end of the year and into 2023, predominantly across transport and commodities, banking and finance, and energy and resources.
The report highlighted that 88% of parties to cases are from countries other than the UK. Alex Sharples, Managing Associate and Alexander Emmott, Associate consider the report's findings below.
The LCIA is one of the world's leading institutions for international commercial dispute resolution, administered pursuant to the LCIA Rules. Often a preferred forum for the resolution international disputes, it also acts as an appointing authority and administers arbitrations conducted pursuant to the United Nations Commission on International Trade Law Arbitration Rules (UNICITRAL Rules). In addition, it provides other services including fundholding and other Alternative Dispute Resolution (ADR) such as mediation, expert determination and adjudication.
Based on the report's findings, in 2022 the LCIA received 333 referrals for cases including 293 arbitrations in accordance with the LCIA Rules. The remaining cases were across its additional services including fundholding and ADR.
The geographical spread of parties highlighted the LCIA's international appeal and global reach. Parties originated from 91 different countries, with 88% of parties from countries other than the UK. Cases referred from North America declined to 5%, with the most significant increase in parties by region from Asia tripling from 8% to 24%. Western Europe increased from 19% to 22%, accounting for one fifth of parties in line with previous years. Meanwhile, MENA accounted for the third highest proportion of parties at 15%. Oceania increased from 1% to 3%, Central and Eastern Europe 3%, Northern Europe 2%, CIS 3%, Africa 4%, Central and South America 4% and the Caribbean 4%.
The report highlights that the LCIA remains a preferred destination for international parties, noting that 95% of LCIA arbitrations in 2022 had at least one international party and 75% of all arbitrations involved no UK parties.
In addition, the number of state or state-owned parties more than doubled in 2022 to 13% from 6% in 2021. Meanwhile, cases involving state parties or state-owned parties accounted for 15% (typically in relation to the telecommunications and energy sectors)
The institution's growth continued despite global developments including the impact of the COVID-19 pandemic and war in Ukraine. Whilst the report found that the number of cases arising from the COVID-19 pandemic arose primarily in the earlier stages of the pandemic in 2020, a clear upward trend emerged at the end of 2022. This appears to be driven by continued sanctions arising from the war in Ukraine, which feature prominently in the LCIA's caseload (including in respect of the applicability and scope of sanctions and the impact on the performance of contracts). The LCIA also continues to operate under a General Licence granted by the Office of Financial Sanctions Implementation, permitting receipt of and payments for arbitration costs enabling the LCIA to assist relevant parties in the resolution of disputes.
The report identified that global developments have continued to influence energy prices, seemingly resulting in an increase in transport and commodity disputes in 2022 (and expected to continue into 2023). 37% of LCIA cases related to transport and commodities, likely driven by the supply chain ripple effect of recent global events. This is also evident in the number of shipping cases referred to the LCIA. The significant increase in parties from Asia is attributed to an increase in commodities involving parties from Asia, particularly Singapore.
Meanwhile, banking and finance disputes occupied 15% of cases, whilst energy and resources a further 11%. Professional services accounted for an increased 9% whilst the remaining sectors spanned single digit figures across construction and infrastructure (5%), technology (4%), entertainment and media (4%), healthcare and pharmaceuticals (4%), hospitality and leisure (3%), insurance (2%), sport (2%), retail and consumer (2%), other (2%), telecommunications (1%), property and real estate (1%).
In line with the increase in cases across transport and commodities, the percentage of sale of goods agreements involved in those cases increased from 25% to 34% of agreement types. The percentage of charterparties increased from nil to 4%, whilst shareholder/share purchase/joint venture agreements and loan/other loan facility agreements made up 10% and 7% respectively (down from 14% and 21% in 2021). The agreements giving rise to UNCITRAL arbitrations were related predominately to petroleum exploration and distribution.
Whilst 92% of claimants sought monetary relief (against 91% in 2021), the LCIA saw an increase in claims below USD $1 million and also claims between USD $5 million - $10 million. The report suggested that the increase in smaller claims correlates with the increase in commodities related claims. Whilst some claims involved significant parties, the report noted that the main incentive for those claims did not appear to be financial. There was also a notable increase in claims between USD $20 million and $50 million.
London remains the most popular seat of arbitration, accounting for 88% of LCIA Arbitrations in 2022. There was also an increased percentage in parties choosing the law of England and Wales at 85% (up from 76% in 2021). 12 other countries were chosen as the seat of arbitration and 19 countries as the choice of law.
With reference to the composition of tribunals, the report highlights that 423 appointments were made of 289 different arbitrators. Three-member tribunals remain the preferred option, remaining a higher proportion at 59% with 41% of cases subject to a sole arbitrator. There was also an increase in party appointed arbitrators to 50% (up from 42% in 2021). 33% were appointed by the LCIA Court (down from 42% in 2021) and the appointment by co-arbitrators accounted for 17%. The remaining appointment recorded was nominated by a third party in accordance with the parties' arbitration agreement.
Nationalities of arbitrators remain geographically spread with arbitrators featured from 49 different countries. Despite 85% of cases being governed by English law, British arbitrators were only appointed in 60% of cases. Most British arbitrators were nominations from parties or co-arbitrators, reflecting the LCIA's efforts to drive diverse international tribunals where possible. In addition, the LCIA continues its efforts in respect of gender diversity. 45% of all LCIA Court appointed arbitrators were women (down from 47% in 2021) as against 19% nominated from parties and 23% from co-arbitrators. The compounding effect of this resulted in an overall number of appointments of women in LCIA Arbitrations at 28%.
Repeat appointments of arbitrators were also down year on year, with the overall percentage of arbitrators appointed only once in the same calendar year increasing from 69% in 2021 to 74% in 2022.
The number of applications for expedited formation of the tribunal pursuant to Article 9A of the LCIA Rules was 3% (from 5% in 2021), with the number of applications for the appointment of emergency arbitrators pursuant to 9B of the LCIA Rules at 1% of new cases in 2022. The LCIA offers an expedited formation and appointment procedure in its arsenal of tools available to parties seeking urgent relief. In addition, the LCIA's procedural rules provide parties with an opportunity to address preliminary matters at an early stage.
Notably, for the first time 25 years the LCIA received no challenges to appointment under Article 10 of the LCIA Rules. Whilst the number of challenges per year is normally limited anyway, the report cites this as a testament to the LCIA's robust disclosure and appointment system as well as its transparent challenge procedures. Objections based on pre-appointment disclosures were made in relation to ten arbitral candidates in 2022, with the LCIA proceeding with the appointment in four of those cases.
Following additional provisions under the 2020 LCIA Rules (effective from 1 October 2020) for composite requests for arbitration and greater powers for the LCIA to consolidate arbitrations, 7% of disputes arose out of more than one agreement. 20% of arbitrations involved more than two parties and 2% of arbitrations involved applications for the joinder of a third party. This was one of the lowest numbers in recent years.
The report further highlights the LCIA's broadened authority in respect of consolidation under the 2020 Rules, with the LCIA granting 69% of successful applications in 2022 and 79% in 2021 against 37% in 2020. The report highlights an uptake of the revised consolidation provisions by parties which reflects a preference for consolidation at an earlier stage which can provide parties with potential streamlined proceedings and/or costs savings. 35 applications for consolidation were made in 2022, representing 12% of all arbitrations. The LCIA Court (rather than tribunals) determined 66% of consolidated applications.
40 applications were also made for interim relief pursuant to Article 25 of the LCIA Rules, involving 31 arbitrations. Security for costs applications were most common. 15 applications were also made for early determination, most commonly citing claims to be without merit and/or that the tribunal had no jurisdiction to resolve the dispute. The report highlights differing approaches by tribunals to early determination, basing decisions on applicable laws but also standards in other forums.
The report also referenced transfers from the DIFC-LCIA following the enactment of Decree No. (34) of 2023 of the Government of Dubai and subsequent agreement between DIAC and the LCIA. 135 cases were transferred by DIAC to the LCIA pursuant to the DIFC-LCIA Rules. The LCIA has closed 70 of those cases, with 21 in the final stages and 41 remaining active or stayed. Many of these cases were from the UAE, governed by the law of Dubai, the law of the UAE or the DIFC, seated in the DIFC or Dubai. Disputes were generally construction and infrastructure related but also real estate, professional services, banking and finance. Agreement types were across construction contracts and sub-contracts, shareholder/share purchase/joint venture agreements, sale and purchase of property and sale of goods.
For a more in-depth review, the LCIA's 2022 Annual Casework Report is available online here.
It will be interesting to see trends into 2023 in response to continuing global issues and developing events. Regardless, the LCIA remains a first-choice forum for many international parties offering reliable and reputable administration and supervision of international disputes under its universal rules and broad, experienced and diverse arbitrators.
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